The Public Loves Wall Street Again!

What is this blasphemy you say? One of our main tenets is to observe what people DO with their money, and not what they preach. The public clearly loves Bank of America and Wall Street again because how else would Bank of America be able to raise $19 billion from us, to pay us back?

In an “Open Letter To Vikram Pandit, CEO of Citigroup”we urged Vik to sell the 34% government stake back to the very public that bailed Citigroup out beforeyear-end. Why? So Citigroup can pay their employees big bonuses in 2009 by saying they are no longer under the government’s stewardship. Sure, paying back $45 billion in TARP sounds like a lot, but Bank of America just did it!

In fact, joining Bank of America are Bank of NY Mellon Group, Goldman Sachs, JP Morgan, Morgan Stanley, and State Street who’ve all been able to pay back their TARP loans and pay their people handsomely this year. This begs the question, what’s wrong with Citigroup, one of my main“go broke banks” used to optimize my finances.

SORRY, I DONNO

Unfortunately, I’m not a banks analyst, nor do I care to comb through Citigroup’s financials to figure out whether they have the means to pay back their TARP loan. Maybe they are really suffering, that’s why their share price is stuck around $4. Or, maybe their share price is stuck around $4, because management hasn’t made any noise about freeing themselves from government control! It makes you think whether being under government control is good for capitalism doesn’t it?

The main irony of Bank of America’s recent $19 billion capital raising, is that the money comes from the very public who bailed them out in the first place. Money just goes from your left pocket, back into your right pocket. Some call this “robbing from Paul to pay Peter.” Bank of America calls this, “Thank you citizens of America for hooking us up again!” A friend of mine from BOA ML was wondering this weekend who this year’s Ken Lewis (aka Great Savior) would be. Little did he know it would be all of you.

CONCLUSION

We’re very pleased by Bank of America’s ability to raise $19 billion so quickly because of three reasons: 1) It shows there is tremendous amount of liquidity in the system, 2) Risk appetite is back even for banks who have rallied 100% from their lows this year already and 3) The public no longer has their silver-tipped pitchforks out to spear an innovative industry responsible for employing hundreds of thousands of innocent people.

Citigroup, you still have about 10 working days left to raise money from the public to pay back, the public. Kuwait’s sovereign wealth fund just offloaded $4.1 billion worth of Citigroup shares, whatcha waiting for?

Readers, why do you think the public has been so quick to forgive Bank of America and the other TARP money institutions? Or, do you think we have an error of correlation here, and those investing another $19 billion in BOA are not the same people who are still against TARP institutions? If this is the case, was it really our money who bailed out these banks in the first place?

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Author Bio: Sam started Financial Samurai in 2009 to help people achieve financial freedom sooner, rather than later. He spent 13 years working in investment banking, earned his MBA from UC Berkeley, and retired at age 34 in San Francisco. Everything Sam writes is based on first-hand experience because money is too important to be left up to pontification.

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For 2018, he’s most interested in arbitraging the lower property valuations and higher net rental yields in the heartland of America through RealtyShares, one of the largest real estate crowdfunding platforms based in SF. He sold his SF rental home for 30X annual gross rent in 2017 and is looking to buy property at half the valuation with strong income generation.

Excellent post. If 63.54% of BoA is owned by institutions, mutual funds, and insiders (mostly institutions) I wonder what percentage of the capital raised came from the other 36-1/2% and how much the institutions raised. I know I’m splitting hairs because the money still came from the taxpayers, but I wonder how much influence the institutional investors have had on BoA’s stock price. My opinion is they have the power to move prices one way or the other leaving the rest of us to chase after them.

As far as bailouts go I think taxpayers are being required to save too many companies. I realize if the government hadn’t stepped in the economy would be in much worse shape but some failure is necessary in order to bring about change. Look at it this way, if your kid flunked math class because he/she genuinely didn’t understand math, and a lot of other kids in the same grade failed math, would you want the school board to step in and change the “F” to a “C” so your child could move on to the next grade? What if it was because the teacher was just really lousy? Or maybe your child inherited the bad math gene from you. Either way bailing out the kid is avoiding the problem.

Borrowing money from the taxpayers should be like having to borrow money from your grandmother on a fixed income; you should be doing everything in your power to pay her back as soon as possible. I don’t get that impression from the companies who took the bailouts.
.-= David F´s last blog ..Develop your own marketing plan =-.

“…why do you think the public has been so quick to forgive Bank of America and the other TARP money institutions?”

A couple of things… 1. the public has a short memory, they moved on quickly after the bailouts, and now there’s no room for animosity because everyone’s riveted on Tiger Woods. 2. The sky didn’t fall afterall. Had circumstances continued to get worse, the pitchforks may have come out. But conditions stablized, and everyone is moving on.

And just a guess for a #3…the numbers were so large, and the related jargon so twisted, that alas, Dick and Jane Q. Public probably never fully understood what was really going on. Mostly, I think everyone’s relieved.
.-= Kevin@OutOfYourRut´s last blog ..Seek Fulfillment Beyond Your Work =-.

Dave – Some very good points you bring up!
First, I would absolutely want the School board to give me kid a “C” or an “A” over the “F” if I had a choice! I’d then make sure my kid gets extra tutoring afterwards to make sure she has at least a C-level grasp.

Second, the public are the clients of institutional investors. So, we’re all one and the same. The public loves everybody again, and that’s a good thing.

Look, they are repaying the money in order to pay the huge bonus bucks in time for Christmas.

I have no problem w/that except I’m not convinced that they are doing this in the interest of the business owners. With 10% unemployment, do they really have to pay the bonus in order to retain “talent” – the same talent that got them into this mess?

“Second, the public are the clients of institutional investors. So, we’re all one and the same. The public loves everybody again, and that’s a good thing.”

While this is true on paper, for most of the institutional investing, JOhn’s sheep are not watching nor participating in making the decisions.

For those willing to invest in BofA today, I think it’s as simply them trying to make some cold hard cash. When it comes to money, nobody cars what you did for me (or to me) yesterday, what are you going to do for me in the future?
.-= LeanLifeCoach´s last blog ..DIYing for Dollars$$$ =-.

Lean – That’s exactly it. So long as the public is making money, or thinks they are going to make money, they want IN! They don’t care about anybody else, and THAT’S the great hypocrisy I’m trying to point out in this article, and in the “You’re Rich, I’m Rich, OK!” article! Sam-urai

@neal@wealthpilgrim It’s crazy isn’t it? I hope you know I’m being a little facetious in my post. I’m ASTONISHED BOA can raise $19 billion in a snap of the fingers, when just 12 months ago, there was no way in heck they could get even $1 dollar!

Nice post. I haven’t followed the bailout news that much but it’s quite interesting to see how these various banks are acting pre/intra/post market meltdown. I feel fortunate I’m not working at a bank, especially not at one who had to take bailout money, and so glad they increased the FDIC insured coverage amount!

Monevator – What about the old saying, “If you can’t beat them, join em!”? Given all the asymetric returns banks get, shouldn’t we all strive to work for the most bullet holed balance sheet of banks to get paid the big bucks?

The great irony this year seems to be that the banks who were on the greatest life support, may very well pay the most since they need to pay the most to retain and attract people.

Of course it is who ever control the money supply. Banks are able to expand and contract the money supply by opening and closing the amount of mortgages and loans they offer. Ever hear of the Money Multiplier? The money supply around the world is much larger than the amount of actual hard currency printed; this is because banks take store the money in their vaults and relend it out and save that and relend it…this goes on and on and their you have the money supply.

Great article, I was laughing thinking back to my previous purchases of many banks.
.-= Smac20´s last blog ..Top 10 Questions to Ask your Investment Advisor =-.

I think you’ve just got your correlation wrong FS. Yes technically its the public making most of the investments through mutual funds, retirement accounts, etc. But the way that raising capital at corporations works has nothing to do with the public.

Bank of America and any other bank or large corporation deals with an investment bank when it comes to raising capital. The investment bank(s) is the only institution being dealt with and they in turn will now hold the instruments (I don’t know what B of A is using to finance) be they bonds, stocks, etc. and guarantee the money to B of A. The investment bank then has to go about and sell the instruments to investors, be they individuals or institutions.

Linking the fact that a corporation was able to raise money directly to an individual investor is just structurally flawed because the way the system works, the individual investor has no say whatsoever.

@Edwin I’m surprised you think the individual investor has no power. The individual investor is the client of the mutual fund. The individual investor can simply withdraw their money and invest in another fund who doesn’t support certain stock he or she is against.

BOA was its own agent in raising $19 bn from the public via new shares. They made a handsome profit for themselves in fees.

If you don’t believe in the correlation, then is it safe to say that your money wasn’t used to bail out TARP banks in the first place?

FS, I think the issue though is that BofA is a single, large entity making decisions in it’s own best interests. As individual investors, we make decisions in our own interests, but being small and dispersed, we aren’t unified. I could decide to punish BofA by selling my small sliver of stock in the company, but unless thousands of other small fries get on the same page and act, there will be zero impact to my action.

As the masses, we barely have the ability to be unified in our voting patterns, let alone in investment decisions. Look how close most of the national elections have been in the past 20 years. The public collection of little people have no concensus on anything.
.-= Kevin@OutOfYourRut´s last blog ..Fast Track to Frequent Flyer Miles =-.

Kevin – One of my hopes for readers of this site is to BELIEVE they can make a difference, no matter how small their voice, or shallow their pocket book.

Make this site will become a big movement in years time and we can sway public opinion? One never knows. I vote with my pocket book by NOT choosing to give money to certain instituions for my savings for example.

You’re right, the individual investor can go ahead and move money out of funds they control which are supporting companies they don’t support.

But this doesn’t happen because it requires the individual investor to actually track every single stock / bond that their separate funds go into. My argument is that no one does this because either they don’t know how, don’t have time or just don’t care to spend that much time and effort to in effect do nothing if they did even pull their money out (as illustrated by Kevin, they just aren’t unified).

The reason I think there is no correlation between the two is because even though the technically can do those things, people don’t. Because people don’t, it’s wrong to assume that they support BofA. I think to make the correlation, you have to logically assume that a significant portion of people actually do pay attention to their funds and move in and out based on their political opinions.

@Edwin I guess my question is, if people rally against TARP banks, and yet continue to invest with institutions that bail them out, then are they hypocrits? If people who are against the bailout don’t care to do anything about it, then who cares about what they care about?

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